Tencent Holdings (TCEHY) posted stronger-than-expected second quarter earnings Wednesday as mobile gaming and online ad revenues surged following an easing of restrictions on new releases from Beijing.
Tencent said net profit for the three months ending in June came in at 24.14 billion Chinese yuan ($3.44 billion), up 35% from the same period last year and well ahead of the Street consensus forecast of 20.74 billion yuan. Group revenues, Tencent said, rose 21% to 88.8 billion Chinese yuan, but missed analysts' forecasts of a 93.4 billion tally.
However, shares were pressured by comments from the company that suggested the negative impact on online advertising from the current business environment will likely persist into the second half of the year.
On behalf of the Board, I would like to thank our staff and management team for their commitment, great determination and professionalism, said said Chairman Ma Huateng. "I would also like to express our appreciation to our shareholder and stakeholders for their strong support."
"Together, we are confident that our commitment to building an ecosystem that prioritise our users' needs in both Consumer Internet and Industry Internet will create long-term value for our shareholders," he added.
Tencent's U.S. listed shares were marked 4.54% lower by mid-morning trading Wednesday to change hands at $41.39 each, a move that trims the stock's year-to-date gain to around 5%.
Tencent's two main online platforms -- WeChat and Weixin -- saw monthly average user growth rise 1.9% from the last quarter, and 7.1% on the year, to nearly 1.133 billion.
Video game revenue rose 8% from last year to 27.3 billion yuan, with smartphone gaming revenue up 26% to 22.2 billion yuan, as new games releases increased following a government crackdown on video game addiction last year.
"We accelerated our rate of innovation in games, successfully releasing new games in several different genres, introducing new modes within some of our key titles, and extending our season passes," the company said. "Meanwhile, we continue to strengthen the Healthy Gameplay System for promoting balanced gameplay for young users."
China's gaming industry generates around $38 billion a year in sales, according to estimates, as developers tap into a social media landscape that boasts around 700 million daily users. Government officials, however, are keen to slow the industry's growth, and issued curbs on new game approvals last year and new guidelines for time spent playing each week.
"The use of electronic products for non-learning purposes should not exceed 15 minutes and should not be more than one hour per day," the Education Ministry said in a statement that included advice on taking frequent gaming breaks. The younger the children, "the shorter the time for continuous use of electronic products," the Ministry urged.